CIRCULAR BUSINESS MODEL DESIGN GUIDE

A practical guide to help business leaders identify circular opportunities and design business models that create, deliver and capture value

Developed in collaboration with:

CONTENTS

01

INTRODUCTION: Creating value in new ways with the circular economy

An economic case that delivers on sustainability

The circular economy (CE) is a key enabler of the shift to sustainable business practices, represented in the UN Sustainable Development Goals as SDG12: responsible production and consumption. It has an important role in protecting life on water and on land (SDGs 14 and 15) and contributing to climate action (SDG13).

According to a report by the Ellen MacArthur Foundation (EMF), only five per cent of the material value of goods produced is recovered.1 The CE provides a genuine economic alternative. Restorative and regenerative by design, it aims to maintain the value and use of products, components and materials at all times. This means enabling reuse, multiple uses, cascading uses, or fully closed loops for technical or biological resources.

Circular businesses have an important role in the transition to the circular economy, and there is commercial opportunity to recover, generate and maximise value within production and consumption systems. This is delivered through product life extension, re-use, remanufacturing, up and downcycling, and recycling. New business models, the use of new disruptive technologies and new mindsets, particularly around technology, are also key.

© Ellen MacArthur Foundation

PARTS MANUFACTURER

Mining/materials Manufacturing

Recycle

Refurbish/remanufacture

Reuse/redistribute

Extraction of biochemical feedstock

Anaerobic digestion/composting

Biosphererestoration

Farming/collection

Biogas

PRODUCTMANUFACTURER

SERVICEPROVIDER

USERCONSUMER

BIOLO

GIC

AL NUTRIENTS TECH

NICAL NUTRIEN

TS

Maintenance

MENU

02

ABOUT THIS GUIDE

Purpose of the guide

The case for moving to the CE is compelling and necessary. It offers a way of improving resource and economic efficiency while reducing the impact on the natural environment, biodiversity and climate, and it’s an opportunity worth $1.8 trillion in value in Europe alone by 2030.2

While technology, policy and regulation have critical roles to play, the transition to a CE will be powered by businesses of all sizes finding new, circular ways of creating, delivering and capturing value.

This guide helps businesses explore and design circular business models.It provides practical steps and templates to navigate an area of enormous opportunity.

Authors

The guide has been created through an EMF CE collaboration project, led and developed by experienced business design, sustainability and CE experts at PA Consulting and Exeter Business School. Progress was informed by regular testing and feedback from large and small businesses, across sectors and regions, from early stage start-ups to established multi-nationals.

Who is it for?

The guide is for any business wanting to understand how they can create, deliver and capture value from circular practices. Regardless of sector, region, business activity, size or maturity, it can be used to:

• identify new ‘greenfield’ circular business opportunities and define the business and operating models required

• explore and define how existing linear businesses can become circular

• refine existing circular business concepts and pilots.

The guide explores how to create, deliver and capture value in its different forms, recognising that this is critical to investable and scalable circular business models.

How to use it

The guide can be used in two ways:

• sequentially, working step by step in a structured way to identify and define new opportunities in an area of business you are interested in

• or with a focus on particular areas to test and refine for those with an existing circular business concept.

Circular business design is an innovative process, so be prepared to test key assumptions, test and learn, and iterate your business model with experience.

The steps and tools can be used independently or in a workshop setting.

V1 NOV 20

MENU

03

Opportunity assessment

Identify the opportunity

Explore the opportunity

Four steps to seize the CE opportunity

This guide will help you identify and define the opportunities for circular business models for your business. The following four steps will help you make decisions about:

WHERE TO PLAY – identify circular business opportunities, using the circular value system mapping tool

HOW TO WIN – create win-win circular value propositions, using the partner mapping tool and circular value proposition template

HOW TO OPERATE – identify the circular capabilities your business will need, using the circular capability checklist

HOW TO PROFIT – select the right circular pricing strategy, using the pricing strategy checklist.

Throughout these four steps, the opportunity assessment tool will help you assess and refine the feasibility of the opportunity. And our completed examples, using a fictional organisation called ‘FashionCo’, offer further support.

NAVIGATING THE GUIDE

Click graphic to navigate to a section.

04

OPPORTUNITY ASSESSMENT: WILL IT WORK?Use this template as you work through each step of the guide to assess and refine the choices you make. Scoring is subjective.

WHERE TO PLAY

How much potential value could this opportunity provide? Think about: •how long it will take to realise that value•how well does the opportunity align with organisational strategy.

How great is the gap between existing capabilities and the capabilities you require? Think about: • the cost associated with closing the capability gap• how much effort it will require to close the capability gap.

To what extent is there potential in the value exchange between the business, customers and partners? Think about: • if there is a market for the value exchange • whether customers and partners want to be part of the opportunity.

To what extent will the pricing strategy enable financial sustainability? Think about: • if the pricing strategy will enable flexibility • if the pricing strategy is right for your current and new

customers now and in the future.

How will this impact the business and its staff due to the amount of change required (including the emotional cost)? Think about: • what it will require to launch the opportunity• how the opportunity identified will affect the

company’s culture, processes, structure and staff.

What is the level of risk associated with pursuing or not pursuing this opportunity? Think about:• how this opportunity could create or prevent

financial and organisational risks • the extent to which the opportunity will

affect new and existing customers.

HOW TO WIN

HOW TO OPERATE

HOW TO PROFIT

BUSINESS IMPACT

RISK

Little to no perceived value Very high perceived value

No value exchange opportunity High value exchange opportunity

Current capability not compatible Current capability highly compatible

Not financially sustainable Very financially sustainable

Negative impact Positive impact

High risk Low risk

TOTAL /30

05

1 WHERE TO PLAY Identify circular business opportunities

The aim of this step is to identify circular business opportunities

There are three parts to this step. It considers the existing value in the business system, where value is lost and at risk, and opportunities to recover lost value and maximise existing values.

Two circular concepts will help you complete this step:

•the power of circularity – which describes how to create economic value through looping of resources and products

•a categorisation of typical circular business models that put these looping approaches into practice.

These are detailed further in the supporting material.

This section has three tools:

06

1 A: Map existing value flow

VALUE YOU CONTROL AND

MANAGE

VALUE YOU DON’T MANAGE

07

Objective:

Identify the existing flow of value within your system.

Think about:

•What value do I provide? What type of value?

•What part of the value chain do I manage?

Instructions:

1Use post-its to identify the key stages of the value system you are considering (e.g. from resource extraction, manufacturing, distribution, sales, use, end of life disposal). Place these in a circle and annotate with any critical aspects of the value creation process

2Map how value flows across the chain at each of these stages. Separate the value you control and manage on the inside of the circle, and value you don’t manage on the outside, such as value that is managed by a supplier or partner

3Consider the four types of tangible value and how these exist within your system (see supporting concept, right)

Supporting concept: four types of value3

Resourcevalue Product, materials, energy, people, space, processes, waste streams

Consumervalue Benefits provided to the change to consumer through the product or service

Datavalue Data collected from your product or services, patents innovation

Relationshipvalue Value of networks and partnerships, consumer loyalty, consumer lifetime value

Within CE and sustainability systems, it is also important that a multi-stakeholder perspective is considered, i.e. that value is provided to:

•environment

•society

•economy.

1 A: Map existing value flow – notes

08

Value that is lost or at risk:

1

2

3

4

5

6

7

8

9

10

11

12

1 B: Consider lost value and value at risk

1 A:

VALUE YOU CONTROL AND

MANAGE

VALUE YOU DON’T MANAGE

09

Objective:

Identify where value is lost within your system and what value is potentially at future risk.

Think about:

•Where is this value being lost? Where are there broken or incomplete loops? Why is it not being captured?

•What future customer, supply or policy changes may put current value creation at risk?

Instructions:

1Looking at your system map from 1A, identify where any types of value might be lost because of linear flows or broken loops (see supporting concept, right)

2Identify what value within the system might be a risk due to future changes such as resource security, climate change, regulation etc.

3Consider how much value is being lost or is at risk, and why (e.g. existing industry structure, competitive forces and technical barriers)

4List out and prioritise value risk areas based on the importance and impact to your business

Supporting concept: the power of circularity

Thepoweroftheinnercircle Materials and resources are reused, refurbished or remanufactured through concepts such as modularity and second hand markets

Thepowerofcirclinglonger The products, components or materials are designed to last longer, be more durable and easier to repair

Thepowerofcascadeduse Product and materials have secondary and tertiary uses rather than disposal

Thepowerofpurecircles Closed loops are created where waste materials and disassembled products and components can be used as feedstock for new products4

1 B: Consider lost value and value at risk – notes

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1 C: Identify circular value opportunities

Productlifetime extension

Circular supplies

Resourcerecovery

Sharingplatform

CA

PTU

RE

C

IRC

ULA

R ID

EAS Idea description: Idea description:

Type of value generated & who benefits:

Type of value generated & who benefits:

Idea description: Idea description:

Type of value generated & who benefits:

Type of value generated & who benefits:

Value that is lost or at risk:

1

2

3

4

5

6

7

8

9

10

11

12

1 B:

USEPOST-ITNOTESTO ADDMORE

BOXES

11

Objective:

Identify opportunities to create or close loops to recover lost value, maximise existing value or conserve value at risk.

Think about:

•What opportunities are there to close loops? Where could you deploy typical circular business models?

•Who benefits from this value?

Instructions:

1Create a new version of your 1A existing value flow map

2From 1B, utilise the list of value lost or at risk

3Using the looping concepts and circular business models as inspiration, consider for each item how to create and close loops to recover or conserve value. On the worksheet, draw arrows between stages to illustrate where this happens

4Capture your ideas to identify what kind of value is generated and who benefits from it

Supporting concept: types of circular business models5

Sharingplatforms Enable increased utilisation of a product by enabling shared use/access/ownership, often allowing consumers to access products more cheaply

Product-as-a-service Products are no longer owned but accessed by one or many customers through lease or pay-for-use agreement

Productlifeextension Extending the working life of a product to ensure it can be valuable in its current form for as long as possible

Resourcerecovery Recovering energy and materials used in the  creation and use of products to ensure they can be used again

Circularsupplies Minimising the natural and renewable resources used, and designing these to be re-used or recycled

1 C: Identify circular value opportunities – notes

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2 HOW TO WIN Create circular value propositions

This step identifies how you can create value for customers and key partners

There are two parts to this step. First, to identify which customers and key partners will be critical to a successful business model, and secondly to define win-win propositions that create value for both parties.

Supporting concept:

Linear models and traditional customer value propositions are based on exchanging money for products or services.

In a CE, a richer relationship that creates mutual benefits is often required. Much of the value being recovered or created is enabled by a relationship sustained over time, with an exchange of information. For example, mechanisms to recover products and materials from customers after use, or to know details about the condition and use of these products and materials.

Rather than thinking purely about a customer/supplier relationship, we think about a two-way partnership where the costs incurred are outweighed by the benefits each party receives in relation to their needs.

This section has two tools:

YOUR BUSINESS YOUR PARTNER

Resource (Cost)

Need (Benefit)

Need (Benefit)

Resource (Cost)

Proposition

13

2 A: Identify customers and key partners

Whattypeoforganisationsarerequiredtomaketheopportunitypossible?

Howcriticalwilltheybetoyour success?(High / Medium / Low)

14

Objective:

To identify the key customer and partner groups critical to your success.

Think about:

• customers

• suppliers

• go-to-market partners

• infrastructure providers

• the whole lifecycle of products and materials.

Instructions:

1 Review the value system you created and ideas you generated in steps template 1A, template 1B, template 1C and pick an idea to explore

2 List out in the 2A template (see previous page) the types of organisations you will need to interact with or will be dependent on to make the opportunity you identified in the previous section possible

3 Consider different types of value exchanges with organisations across the whole value system

4 Assess how critical they will be in delivering your idea and how much power they will have in capturing value

2 A: Identify customers and key partners – notes

15

2 B: Define mutually beneficial circular value propositionsNow you understand who you need to partner with, use the value exchange template below to understand their needs and develop the offer.

Opportunity

Customerorpartner Yourorganisation

Needs

Outcome

What outcomes are they pursuing that you can help with?

What goals are you pursuing that require a partner?

NeedsWhat are their specific needs? What are your specific needs?

Why exchange?

Why would your potential partner exchange value with you?

Why would you exchange value with the potential partner?

Proposition

TheofferWhat is our offer to each of those needs? How does this address the partner goal?

What do you need the partner to offer to meet your needs?

Benefits

What are the unique and additional benefits that differentiate you from competitors’ offers?

What benefits will you receive from the partner?

Exchange model

How would the exchange work?

Through what channels will it be delivered?

Trade-offs

What will the partner NOT get from you (that may be available from competitors)?

What will you NOT get from the partner?

16

Objective:

Define a win–win value proposition for customers and each critical partner.

Think about:

• exchange of products and materials, data and services, not just money

• exchanges over time, not just at purchase point

• customer pain points that exist today and that could be barriers to a circular proposition.

Instructions:

1 Complete template 2B for each critical partner you identify

2 Start with the outcome and specific needs you and the partner have

3 It may help to consider different segments, or use personas of customer journey maps to understand your partner’s perspective

4 Develop mutual win-win propositions, and define how these will work in practice

5 Engage with partner organisations and consider collaborating with them on this exercise

2  B: Define mutually beneficial circular value propositions – notes

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3 HOW TO OPERATE Identify circular capabilities

This step identifies the key circular capabilities your organisation will need in order to be successful.

It explores both operating and support capabilities, organised by typical circular business models. These are prompts to inspire you to identify the circular capabilities your business will need, and should not constrain your thinking.

The section focuses on circular specific capabilities which may be new or have critical differences.

Supporting concept:

Business capabilities are a helpful way to think about what your business will need to do and what tasks it will need to perform. They are a way of defining the ‘what’ of the operating model.

To deliver capabilities successfully, businesses need a combination of resources (such as people, information, applications and facilities) organised in the right way (processes and structure, for example).

The operating and support capabilities required will differ between the various circular business models.

This section has one tool:

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3 A: Circular capability toolNow that you understand who you need to partner with and their needs, use the circular capability tool to define the capabilities to operate successfully

Keyactivitysteps

Step1 Step2 Step3 Step4

Capability

Capability

Capability

Capability

Capability

Capability

Criticalresourcesneeded:

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Objective:

To identify specific circular capabilities that your business will need.

Think about:

• operating and supporting capabilities. You can use the next two pages as a prompt.

Instructions:

1 Identify the key value-adding activity steps for your circular initiative and add these to the top of the table (see page 19)

2 Break down each step into the capabilities required to perform it (use the capability prompter list in the supporting concept box, right)

3 Identify any critical resources you will need for these capabilities. Consider key and scarce skills, facilities or equipment, information, technology and relationships

4 Colour code the maturity of each capability to guide where you will need to focus development activity:

Red – capability does not exist and cannot be easily acquired

Amber – capability exists or can be acquired but will need to be developed

Green – capability exists or can be easily acquired

3   A: Circular capability tool – notes

Supporting concept: circular capabilities

• operating circular capabilities (p32)

• circular supporting capabilities (p33).

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4 HOW TO PROFIT Identifying the pricing strategies required to develop financially

sustainable business model(s)

This step identifies pricing strategies that will help your business monetise the value it creates, making it viable and able to scale.

It includes prompter material on different pricing strategies and how they can apply in the CE.

The pricing strategy tool helps you choose a suitable strategy and evaluate the implications.

Supporting concept:

Previous steps have focused on a broad concept of value, recognising the important contribution the CE can make to the environment and society.

To be successful, your business needs to capture enough of the value it creates for customer and partners as income, in order to finance itself.

To attract investment capital, cover costs, invest in the future and scale, the business must be financially viable, not just creating value in the value system.

This can be a challenge in the CE, given it often necessitates understanding and maximising value over the whole life of products and materials, potentially through multiple owners.

This section has one tool:

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4 A: Pricing strategy tool Now that you understand the value exchange propositions, use the pricing strategy tool to define the right pricing model(s) for your opportunity

Opportunityname: Implications:

Which pricing model fits best with the opportunity? (Pay for ownership or access)

What are the benefits of your chosen pricing strategy over linear competitors? (Identifying value)

How will you capture and report non-financial value that would otherwise have been lost? (For instance, the social and environmental impact)

How will your customers benefit from this pricing strategy? (i.e. meeting needs)

How much are your customers willing to pay? (Consider different pricing for different segments)

What are the organisational implications for your business?

How will this pricing strategy impact your revenue and costs?

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Objective:

To understand the potential pricing strategies that can be employed to help achieve your CE goals.

Think about:

• Which pricing model fits best with the circular opportunity identified?

• What are the implications of the chosen pricing strategy in terms of impact and benefits?

• Who are the beneficiaries and what is their willingness to pay?

Instructions:

1 Identify which pricing model (see supporting concept, right) fits best with the opportunity identified

2 Consider the questions in the pricing strategies (see supporting material) and how these will align to your business model

3 Once you have identified a pricing model that works with your business model, use the pricing strategy tool template to think through the implications for your business

4   A: Pricing strategy tool – notes

Supporting concept:

• paying for ownership – pay for the right to own the product indefinitely

• paying for access – pay for the right to access the product on agreed terms.

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FINAL OPPORTUNITY ASSESSMENTAssess and review the potential of your opportunity

WHERE TO PLAY

How much potential value could this opportunity provide? Think about: •how long it will take to realise that value•how well does the opportunity align with organisational strategy.

How great is the gap between existing capabilities and the capabilities you require? Think about: • the cost associated with closing the capability gap• how much effort it will require to close the capability gap.

To what extent is there potential in the value exchange between the business, customers and partners? Think about: • if there is a market for the value exchange • whether customers and partners want to be part of the opportunity.

To what extent will the pricing strategy enable financial sustainability? Think about: • if the pricing strategy will enable flexibility • if the pricing strategy is right for your current and new

customers now and in the future.

How will this impact the business and its staff due to the amount of change required (including the emotional cost)? Think about: • what it will require to launch the opportunity• how the opportunity identified will affect the

company’s culture, processes, structure and staff.

What is the level of risk associated with pursuing or not pursuing this opportunity? Think about:• how this opportunity could create or prevent

financial and organisational risks • the extent to which the opportunity will

affect new and existing customers.

HOW TO WIN

HOW TO OPERATE

HOW TO PROFIT

BUSINESS IMPACT

RISK

Little to no perceived value Very high perceived value

No value exchange opportunity High value exchange opportunity

Current capability not compatible Current capability highly compatible

Not financially sustainable Very financially sustainable

Negative impact Positive impact

High risk Low risk

TOTAL /30

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CONCLUSION AND NEXT STEPS

Making your circular opportunities a reality

Next steps

This guide is a starting point for your journey into creating, delivering and realising value through circular business models.

Circular business design is an innovative process, so be prepared to test key assumptions, test and learn, and iterate your business model with experience.

We would love to connect with you to hear your experiences and help you along your journey. Your feedback will also shape the guide's ongoing development. Complete our questionnaire or get in touch directly.

Acknowledgments

We would like to thank those individuals who have contributed to developing the guide, providing feedback, or testing it:

From the Ellen MacArthur Foundation network and other organisations: Frances Kärsten, Peter Bartel and Arne Janssen (C-ECO), Gaurav Sharma (Schneider Electric), Peter A Lindeblad and Pia Huusfelt (INGKA), Nitesh Magdani (Net Positive Solutions), Sophie Thornander and Raquel de Mira (Philips), Jan Konietzko and Brian Baldassarre (TU Delft), Isabelle Gubelmann-Bonneau and Imre Horvath (Solvay), Sarah Jones (Siemens), Dhruv Boruah and Nicky Adamo (CommonVC), Domini Hogg (Tried and Supplied), Adam Vine (Relay. eco), Elliot Warren (Giftdrop)

From University of Exeter: Fiona Charnley, Adam Lusby, Delfina Zagarzazu, Ken Webster, Oke Okorie, Katie Cooke, Kim Nettleton-Croley, Allen Alexander and David Monciardi 

From PA Consulting: Finuala Alexander, Elodie Aubanel, Tom Bovingdon, Olivia Christen, Donna Fiegert, Kati Gardner, Georgina Gately, Nicola Keen, Anne-Marthe Kristiansen, Annabelle Livingstone, Sam Maguire, Stephan Metcalfe, Michael Milton, Josh Morris, Richard Owen, Natalie Podd, Sukh Plaha, Grace Rawcliffe, Rishi Sharda, Eelco Spinhof, Amelia Yeomans

Mark Lancelott

Sustainability and business design expert PA Consulting mark.lancelott@paconsulting.com

Merryn Haines-Gadd

Researcher in Circular Economy and Design University of Exeter m.s.haines-gadd@exeter.ac.uk

Developed in collaboration with:

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SUPPORTING MATERIAL

26

SUPPORTING MATERIAL

The aim of this section:

The aim of this section is to provide further information on the supporting concepts for the steps and tools in the main section.

This information is to help guide you through your exercises and provide inspiration when identifying your circular opportunity. It will also help set which circular business model will best fit and is most relevant for your organisation.

This section is divided into six key topics:

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1A: Value taxonomy The value taxonomy framework identifies different types of value available within the circular system, and will help in completing step 1A.

The Taxonomy of Value framework, developed by Haines-Gadd and Charnley, helps to identify and understand the different types of value available within the CE system.6 Through literature review and case study analysis they propose there is tangible/explicit and intangible/implicit value within the CE.

Tangible/explicit value is value that can be capitalised upon:

Resource value, customer value, relationship value, data/knowledge value.

Intangible/implicit value is value that is generated as a result of circular systems:

Stability and control, symbiosis, positive social impact, altruism, behaviour change.

TYPES OF TANGIBLE/EXPLICIT VALUE

Resource value

Product, materials, energy, people, space, processes, waste streams

Data/knowledge value

Data collected from your product or service, patents, innovations

Consumer value

Benefits provided to the consumer through the product or service

Relationship value

Value of networks and partnerships, consumer loyalty, consumer lifetime value

TYPES OF INTANGIBLE/IMPLICIT VALUE

Stability and

control

Positive social

impactBehaviour

changeAltruism

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1B: The power of circularityCircularity can create value in four ways.7 Read the descriptions about the four different ways circularity can create value to assess whether it inspires any new ideas about opportunities for your business when completing step 1B. Pages 30–33 outline five business models linked to these circular values.

THEPOWEROFTHEINNERCIRCLE

THEPOWEROFCIRCLINGLONGER

THEPOWEROF CASCADEDUSE

THEPOWEROF PURECIRCLES

This involves minimising the materials and resources required for reusing, refurbishing or remanufacturing. For example, the modular design of Nike Zvezdochka shoes replaces worn parts rather than the whole shoe.

This looks at ways to extend the life of products through innovation and technology, minimising the resources required for full product or component creation. For example, Caterpillar has an engine block with a removable sleeve. When the component is recovered, this material can be removed and replaced to return the engine to as-new performance.

This business model optimises the use of the product from delivering its primary purpose, to secondary use after this, and then tertiary use etc. For example, H&M sell first-hand clothing as a primary purpose, may re-sell to different markets as second-hand, then turn the clothing into other products such as cleaning cloths, followed by use as textile fibres for insulation material.

Products within this concept of value creation are created from pure, raw materials. When they are redistributed, the quality is maintained, extending product longevity. For example, Desso carpet use pure nylon because products made from pure components are easier to disassemble to create new products in both the biological and technical cycles.

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1C: Circular business models in practice

BUSINESSMODEL THENEED CIRCULARSOLUTION THEBENEFIT

Creating a sharing platform

Example: Fat Llama

A lot of equipment owned by individuals is used only a few hours in its lifetime. An effective sharing economy model would help realise underutilised potential

A peer-to-peer sharing platform for technical equipment; a thriving marketplace for lenders and borrowers with insurance covered by Fat Llama

Access to a wide range of high-end equipment at an affordable rate for the consumer, extra revenue from idle assets for asset owners and a strong incentive to create equipment that lasts for the manufacturers

Products are used by one or many customers by means of a lease or pay-for-use arrangement.

Example: Hewlett-Packard

Plastic printing cartridges are expensive to the customer, often single use, and rarely recycled

An IoT subscription model that increases cartridge recovery and recycling by using connected printers to send customers replacement cartridges, with pre-paid envelopes for returning used cartridges

Reduced packaging eliminates up to 57% of waste. Ink costs for consumers reduced by up to 50%. Data helps inform system designs for manufacturers to minimise waste, improve serviceability, durability, and customer satisfaction

Extending products’ lifecycle through initial product design and refurbishment or remanufacture enabling the resale of products

Example: Apple

Electronic products are very difficult to recycle, expensive to produce, and use up a lot of resource in both manufacturing and recycling

Trade-ins allows users to trade in their phones or laptops for an Apple gift voucher. The product is then refurbished and made available for resale or reuse

Fewer devices are being thrown away or recycled while still useable. The full value of the materials and resources is being gained before they are effectively recycled and the parts used in new devices, benefitting the organisation

Upcycling or recycling products

Example: Rede Asta

An enormous amount of material value is lost in landfill sites. For example, everyday in Brazil around 200,000 tons of solid waste is collected and only around 3% is recycled

Rede Asta has partnerships with hundreds of companies in Brazil to collect waste or unused equipment. They then offer bespoke designs using these discarded materials to suit specific marketing purposes

Impact at scale: wide network means discarded materials can be recovered nationwide, creating value and reducing liabilities for companies. Over 80% of the products for consumers are made from recovered materials

Redesigning products and supporting operations

Example: Google Data Centres

High utilisation of resources and energy efficiency required in all hardware, software and all infrastructure across Google Data Centres

Google is the primary manufacturer of all its server parts and tests all components every quarter. This helps it maintain/prolong, refurbish/remanufacture, reuse/redistribute or recycle as needed for the longest lifecycle product possible

Active transition to a CE for Google that combined with a circular approach to optimise the end of life of servers have resulted in hundreds of millions per year in cost avoidance for the organisation

SHARING PLATFORMS

PRODUCTASASERVICE

PRODUCT-LIFE-EXTENSION

RESOURCERECOVERY

CIRCULAR SUPPLIES

Circular business models use loops to create and retain value within the system. Below are examples of typical circular business models and describes what benefits they offer, to help complete step 1C.8

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1C: What value can business model strategies create?9

RESOURCEVALUE CUSTOMERVALUE KNOWLEDGE/DATAVALUE RELATIONSHIPVALUE

• revenue from selling access to a product for a specific period of time or ‘uses’, and retaining material ownership

• revenue from increased utilisation rate of products, enabling shared use/access/ownership

• reduction in the resources used and wasted due to shared rather than individual ownership of products

• can reduce reliance on individuals to invest in paying for the product

• more flexibility by providing functions/products only when needed

• provides increased access to variety of products

• improved understanding of when customers require goods and what they need them for

• longer customer and company relationship• relationships with customers who

could not afford product outright• ability to develop supply chain or

partner goals to deliver the platform

• ability to create new services as unique value propositions

• more consistent and predictable income streams from service subscriptions

• potential for reduced resource usage and waste creation through delivering as a service

• can be more cost effective for consumer as reduces upfront costs on high value items

• provides flexibility, less commitment• increased product value from repairs• provides more options for

how to pay for the service

• delivering products as a service can facilitate improvements in the ability to collect data particularly where the service is digital

• reach more consumers at a lower price point and lower cost to the organisation

• ability to develop supply chain or partner goals to deliver the service

• revenue from providing after-sales maintenance or upgrading services on longer life products

• revenue from sales of refurbished, remanufactured or repaired units and components

• reduced resources used instead of replacing items, consumers maintain existing products

• reduces the amount that individuals have to pay to replace items

• extended use of products that are long lasting and reliable

• allows consumers to trust they are making sustainable purchases

• maintaining products gives exposure to how consumers are using products, which is valuable in future marketing and design activities

• longer customer/company relationship• relationships with contractors/suppliers• ability to develop supply chain or partner

goals to enable the extension of product-life

• revenue from recovering resources out of disposed products or by-products/resourcing end-of-life and end-of-use

• resources recovered can be used to save money in other areas e.g. capture of heat or light during manufacturing

• reduced waste as valuable materials are extracted for re-use/reducing waste and production waste by reproducing materials

• cost-efficient option from using pre-used materials and resources.

• the ability to make eco-conscious purchasing decisions of products that have a lower environment burden

• greater knowledge about resource properties and infrastructure can support understanding of opportunities for new product development

• creates the potential for longer customer relationships as it provides a reason for customers to come to you at the end of use. This also allows stronger and longer relationships with contractors/suppliers

• ability to develop supply chain or partner goals to enable the recovery of resources

• reduced waste and pollution from intentionally using resources and materials designed to be used and re-used

• potential cost reductions from minimising resources used

• knowledge that products used will be properly and appropriately managed and disposed

• can be more transparent in data about the products to be used as a product differentiator

• longer lasting relationships with partners• ability to develop supply chain or partner

goals to enable the use of circular supplies.

SHARING PLATFORMS

PRODUCTASASERVICE

PRODUCT-LIFE-EXTENSION

RESOURCERECOVERY

CIRCULAR SUPPLIES

Below is a mapping that shows how the typical circular business models can create value, using the value taxonomy described on page 28.

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3A: Operating circular capabilities

Circularbusinessmodeltype

Circularbusinessmodeltypes

Sharing platforms

Productasaservice

Product-lifeextension

Resource recovery

Circular supplies

Operatingcircular capabilities

Cleanmaterialflows Effectively ensure material and component flows are clean so they can be reused by customers, partners etc. or reused in manufacturing of new products

Productmaintenanceandrepair

Repair and collect products, and provide maintenance for longer term use by the customers

Repair and re-use products and components through your own manufacturing process to produce new products

Circularredesignandupgrades

Redesign products for circularity in order to provide upgrades for longer term use by the customers

Upgrade and redesign re-used products and materials to develop a new product

Takebackschemes/ managereturned

productsandmaterials

Effectively manage return and collection of used products from customers

Effectively collect and manage returned used products and byproducts from other organisations, stakeholders, suppliers and from potential customers

Re-marketproducts Re-market upgraded or repaired products for further use by customers

N/A

Re-market upgraded or repaired products for further use by customers

Use this list of operating capabilities to help identify the circular capabilities your business will need.

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3A: Circular supporting capabilities

Circularbusinessmodeltype

Circularbusinessmodeltypes

Sharing platforms

Productasaservice

Product-lifeextension

Resource recovery

Circular supplies

Circularsupportingcapabilities

Dataanalytics management

Get insight on customer need, demand, product information and usage, and identify market trends. Manage the data collection and analysis. Use this information to improve the circularity of your product or offering

Manageflexiblepricing models/

repriceproducts/ managepricingservices

Enable short- and long-term contracts with pricing options for customers. Consider platforms, memberships and different pricing levels for first buys, services, repairs, collection/delivery and refills

N/A N/A

Managequalitystandardprocesses

Assess quality of products, and ensure that the reused products and refilled products are in good condition to be further used by existing or new customers

Assess quality of materials and re-used materials to be used in the manufacturing of new products and assess quality of finished products to be sold to customers

Use this list of supporting capabilities to help identify the circular capabilities your business will need.

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3A: Circular capabilities list

CIRCULARCAPABILITIESLIST

OPERATINGCAPABILITIES SUPPORTINGCAPABILITIES

Supporting capabilities Management of distribution channels 

Assessment and/or inspection of materials Effective platform management

Inventory management Service subscription and/or service contract management

Management of innovative packaging/repacking products Matching supply/demand real time assessment

Asset management and tracking/remote monitoring Supplier management

Management of product cleaning and refill processes Customer relationship management

Management of remanufacturing, refurbishment and recondition of products

Circular supply chain management

Understanding new product uses and applications Circular lifecycle planning

Management of circular production processes Forecasting and monitoring market prices

Understand utilisation of products Management of circular procurement processes

Manage R&D processes Management of partnerships

Management of sustainable sourcing Conducting market analysis

Design of products for disassembly, recovery, end of life and life extension

Management of legal processes

Product condition assessment/inspection of products/ conducting product fault analysis

Contract management including outsourcing contracts

Collection of waste Management of financial incentives schemes for recovered parts

Providing a list of operating and supporting circular capabilities that will help identify what capabilities your business needs. Operating capabilities directly create value for customers, whilst support capabilities do this indirectly, enabling the operating capabilities.

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4A: Innovative pricing strategies

If I offer my customers ownership of a product If I offer my customers access to a service

Whatarethepricingstrategyoptions?

Pricing implications

Numberoftransactions

Sellandbuy-backforre-saleandreuse

The customer owns the product until another buys it

Separate price strategies required for primary markets and secondary “used” markets – e.g. eBay, Depop, Gumtree

MANY

FEW

Sellandrefurbishforre-sale

The customer owns product and receives a deposit/incentive on return of product or core component

Flexible pricing strategies as it needs to include refurbishments and resale of products and components - e.g. Caterpillar REMAN, The Real Real, Patagonia

Sellandtake-backforrecycle

Customer owns until manufacturer takes back for recycling

Pricing strategies may be closest to traditional models – e.g. reGain, H&M, Zara, C&A

Whatarethepricingstrategyoptions?

Pricing implications

Numberoftransactions

Payforone-offusage

Consumer has access to an asset for a period of time

Pricing based on one-off access based on the length of usage– e.g. Airbnb, Rent the Runway (occasion), Filippa K

MANYPayforsub-scription

Pricing based on expected uses over lifetime and timing

Access to a service on a subscription basis – e.g. Netflix, Rent the Runway (monthly)

Supporting concept: Paying for ownership – pay for the right to own the product indefinitely

Supporting concept: Paying for access – pay for the right to access the product on agreed terms

Examples of pricing strategies within ‘pay for ownership’ and ‘pay for access’ for your chosen circular business model.

35

WHAT PRICING OPTIONS DO I HAVE?

COMPLETED EXAMPLES

36

COMPLETED EXAMPLESInspiration examples to help you complete the exercises…

The organisation

We will be using fictional organisation called ‘FashionCo’ to demonstrate how you can go about completing these exercises.

FashionCo is a fashion brand that currently operates in a linear manner. The business is run in a traditional sense; it sources raw materials, designs styles and manufactures the clothes into these styles using these raw materials. It then packages and brings the clothes to retail stores to sell on to customers.

Until now, FashionCo has made certain attempts to instil circularity into its present operations, however it is looking to progress this significantly and introduce circularity as a fundamental concept.

Where to find the examples

Each exercise template links to a completed version from FashionCo’s perspective.

How to use the examples

Use FashionCo’s examples as a guidance when you are struggling to get started or are in need of inspiration.

This section includes examples to the tools provided throughout the guide:

37

1 A: Map existing value flow [completed example]

Resources:

Fabric (China), dyes (India), components – zips,

buttons, thread (China)

End of life:

Details:

unknown

Use/maintain:

Garments not repaired or maintained and discarded

Garments worn very infrequently

Details:

unknown

Distribution/sales:

UK based distribution products sold on

company website & with retail partners

Manufacturing:

Two factories in Shenzhen

100 employeesVALUE YOU CONTROL AND

MANAGE

Reusable pallets returned to supplier

Capture consumer emails at point of sale

Offcuts

Sent to landfill

Old machinery sent to landfill at end of life

No info on how long product is used

Packaging LPDE disposed (landfill) by consumer

Packing waste handled by waste manager supplier

Products most likely end up in landfill or second hand market in developing countries

Suppliers A, B, C – virgin resources (plastic, metal, cotton) used to produce fabric and components

VALUE YOU DON’T MANAGE

FashionCo

FashionCo manufactures and sells clothing in the UK and EU.

They mapped the lifecycle of one of their product lines (seasonal wear) and tracked how and where value flowed across the key stages of their system.

38

1 B: Consider lost value and value at risk [completed example]

Value that is lost or at risk:

1

2

3

4

5

6

7

8

9

10

11

12

1 A:

FashionCo

Looking at the map from 1A, FashionCo identified where they are losing value across their system and where value might be at risk in the future due to external factors.

VALUE YOU CONTROL AND

MANAGE

VALUE YOU DON’T MANAGE

Input/resources: Virgin materials at risk due to climate change and resource scarcity

Manufacturing: Do not reuse or repurpose waste products of manufacturing process (e.g. unsellable pieces, offcuts)

Manufacturing: Equipment ending up in landfill once it becomes obsolete

Distribution/sales: Having issues with unsold seasonal stock that ends up incinerated or recycled

Use/maintain: No data or insights are collected about the product in use, i.e lifespan, how often worn or used, or where it ends up at end of life

Use/maintain: No value is captured from the product during the use phase

Use/maintain: Seasonal stock (coats etc.) have low utilisation rates of 3–4 months per year

Use/maintain: Garments not used when out of favour, don’t fit or fall out of fashion

Use/maintain: The packaging only protects the product inside and yet it comprises a significant proportion of the costs

End of life: Many of our products are not getting repaired or refurbished so end up in landfill

End of life: Products not designed for disassembly, material recovery

End of life: Consumers unsure of how to dispose of unwanted products so end up in landfill

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1 C: Identify circular value opportunities risk [completed example]

Input/ resource

End of life

Use/ maintain

Distribution/ sales

Manufacture

Productlifetime extension

Circular supplies

Resourcerecovery

Sharingplatform

CA

PTU

RE

C

IRC

ULA

R ID

EAS Idea description: Idea description:

Type of value generated & who benefits:

Type of value generated & who benefits:

Idea description: Idea description:

Type of value generated & who benefits:

Type of value generated & who benefits:

Idea description:

Type of value generated & who benefits:

Value that is lost or at risk:

1

2

3

4

5

6

7

8

9

10

11

12

1 B: [Completed

example]

FashionCo

Utilising the list of lost and value at risk, FashionCo generated ideas for how to recover the lost and at-risk value, as well as how to create new value within their network.

They used the typical circular business models as inspiration.

Use recycled materials such as pre-worn cotton as inputs to reduce risk and burden of virgin resources

Reduces overall carbon footprint, benefiting the environment

Repurpose unusable materials – sell unwearable clothes as dish cloths

New revenue stream, better perception of the company’s ethics

Create an initiative for customers to share, swap or sell unwanted clothes

Extends the use of the products, creates community between consumers

Set up rental scheme of seasonal clothes such as coats, gloves etc

Organise take-back scheme of unwanted clothes for upcycling or material recovery

Increase utilisation of the products, creates a new revenue stream, opens up to a different customer segment

Diverts resources from landfill, creates potential new resource stream for manufacture

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2 A: Identify customers and key partners [completed example]

Whattypeoforganisationsarerequiredtomaketheopportunitypossible?

Howcriticalwilltheybetoyour success?(High / Medium / Low)

Logistics partner to manage distribution and take back of clothing High

Existing customers High

Technology partner to manage online platform and collect data Medium

Analytics partner to manage and interpret data captured Medium

Partner to clean, repair and inspect clothing High

FashionCo

Picking ideas from stage 1C, FashionCo decided to explore the rental of seasonal clothing (coats etc.) as a new circular initiative. They decided to incorporate data capture as part of their activities to track product usage and improve their knowledge about their customers and products.

They listed all the partners they need to make this idea happen.

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2 B: Value exchange template [completed example]

FashionCo

After listing all the potential partners in the previous step, FashionCo picked their customer as the first partner to fill in the value exchange template.

This allowed them to refine what the consumer value proposition would be for their initiative.

They would then repeat this step with another partner, such as a potential repairing and cleaning partner.

Opportunity

Customerorpartner Yourorganisation(FashionCo)

Needs

OutcomeClothing that provides comfort, warmth and style at the time of year I need it

Increase our customer base and capture value from a products during the use phase

NeedsCoats for different occasions (work, casual, outdoor), varying sizes and styles

Continuous and reliable revenue stream, increased knowledge of products

Why exchange?

Saves space in wardrobe, reduce environmental impact, gives consumer ability to have new coat each season, can get different sizes if needed

They will pay to access to clothes and facilitate data capture on our products

Proposition

Theoffer

We will provide customer focused, data-driven on-demand access to seasonal clothing. The service will stock the latest designs, provide style suggestions, as well as cleaning, repairing and storing services

Customers will provide economic value and a willingness to engage with data capture aspect of the service

Benefits

No other seasonal coat service currently available, consumer and data focus of the initiative

Diversify our customer base, customer loyalty, data on utilisation and lifespan of products, maximise the value of our assets

Exchange model

Using an online platform, customer will pay a subscription for coats for a season. Data will be captured on coat in use through RFID and then will be taken back when no longer needed

Delivered by courier or through local dry cleaning network

Trade-offsWon’t have the ability to own and keep their coat all year round. Would need to re-order every year

Lack of certainty that the coats will be cared for while in use

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3 A: Circular capability tool [completed example]Now that you understand who you need to partner with and their needs, use the circular capability tool to develop your offer.

Keyactivity steps

Source clothing

Matchingclothingto

customerneeds

Distributionandtakeback

clothes

Refurbish andre-pack

clothes

Capability Ability to understand sustainability impact for clothing 

Manage flexible pricing models and setting the right pricing strategy

Manage distribution and network channels

Re-pack products

Capability Effective collection of materials and products

Analytics to understand customer needs

Monitor item usage Add materials

Capability Stock management Conduct customer research and feedback

Take-back schemes/scheduling of return and repairs

Check quality

Capability Manage customer insight

Provide options and help customer ‘select’

Inventory management/track quantity

Product maintenance and repair/refurbish

Capability Manage sustainable sourcing

Manage data usage and privacy

Effective platform management

Inspect materials and products

Capability Communicate and engage with customers to promote ‘give back’

Manage ethical marketing

Subscription management

Product redesign and upgrade

Criticalresourcesneeded:

• collection points• trained staff• analytics software• storage/warehouse

space.

• trained staff• customer segments

statistics and trends • robust data

platforms and security software.

• trained staff• sales statistics• distribution

platform.

• packaging solutions

• trained staff • cleaning/upkeep

equipment.

FashionCo

FashionCo had to gain a clear view on what capabilities are critical for the success of their rental of seasonal clothing (coats etc.) as a new circular initiative at each activity step of their value flow. This includes what capabilities are needed to make this opportunity successful at each step, identify capabilities FashionCo currently have (green) and identify critical capability gaps (red). In addition, FashionCo had to assess what resources are needed to make this happen.

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4 A: Pricing strategy tool [completed example]

FashionCo

FashionCo needs to set a pricing strategy for their new rental of seasonal clothing (coats etc.) circular initiative and assess the benefits and implications for this chosen pricing strategy.

Opportunityname:Rental of seasonal clothing (coats etc.)

Implications:

Which pricing model fits best with the opportunity? (Pay for ownership or access)

Pay for access

What are the benefits of your chosen pricing strategy over linear competitors? (Identifying value)

Avoids upfront cost, enables access to new garments, easy to budget for, and avoids hassle of storage or disposal

How will you capture and report non-financial value that would otherwise have been lost? (For instance, the social and environmental impact)

Track multiple use of garments and repairs to extend life. This can be compared to a baseline of ‘normal’ garment use to calculate potential avoidance of landfill, and natural resource usage from new production

How will your customers benefit from this pricing strategy? (i.e. meeting needs)

Two key segments:

1. FashionCo consumers and new consumers who are environmentally conscious

2. Consumers who are looking for an easy and affordable way to change their garments

How much are your customers willing to pay? (Consider different pricing for different segments)

Segment 1: £20 p/month for 12 month subscription service

Segment 2: £15 p/month for 24 month subscription service

What are the organisational implications for your business?

Financial management is critical – pricing and profit management over customer contracts and garment lifetime. Management of stock will be critical, including refreshing range with new/retiring items

How will this pricing strategy impact your revenue and costs?

Steady revenues from subscription need to be balanced against stock depreciation; capital investment in garment stock required; management of financial risk

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Opportunity assessment [completed example]

WHERE TO PLAY

How much potential value could this opportunity provide? Think about: • how long it will take to realise that value• how well does the opportunity align with organisational strategy.

How great is the gap between existing capabilities and the capabilities you require? Think about: • the cost associated with closing the capability gap• how much effort will it require to close the capability gap.

To what extent is there potential in the value exchange between the business, customers and partners? Think about: • if there is a market for the value exchange • whether customers and partners want to be part of the opportunity.

To what extent will the pricing strategy enable financial sustainability? Think about: • if the pricing strategy will enable flexibility • if the pricing strategy is right for your current and new customers now

and in the future.

How will this impact the business and its staff due to amount of change required (including the emotional cost)? Think about: • what it will require to launch the opportunity• will the opportunity identified will affect the company’s

culture, processes, structure and staff.

What is the level of risk associated with doing or not doing this opportunity? Think about:• how this opportunity could create or prevent financial and organisational risks • the extent to which the opportunity will affect new and existing customers.

HOW TO WIN

HOW TO OPERATE

HOW TO PROFIT

BUSINESS IMPACT

RISK

Little to no perceived value Very high perceived value

No value exchange opportunity High Value exchange opportunity

Current capability not compatible Current capability highly compatible

Not financially sustainable Very financially sustainable

Negative impact Positive impact

High risk Low risk

TOTAL 16 POINTS /30

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ENDNOTES

No. Reference

1 Towards a circular economy: business rationale for an accelerated transition

www.ellenmacarthurfoundation.org, May 2015

2 As above

3 ‘Creating a taxonomy of value for a circular economy’

by Haines-Gadd, M. & Charnley, F (2019),

in Sustainable Design and Manufacturing 2019, Springer, 2019

4 Towards a circular economy: business rationale for an accelerated transition

www.ellenmacarthurfoundation.org, May 2015

5 ‘5 Business models that are driving the circular economy’

by Lacy, P., Rosenberg, D., Drewell, Q., & Rutqvist, J. (2013)

No. Reference

6 ‘Creating a taxonomy of value for a circular economy’

by Haines-Gadd, M. & Charnley, F (2019),

in Sustainable Design and Manufacturing 2019, Springer, 2019

7 Towards a circular economy: business rationale for an accelerated transition

www.ellenmacarthurfoundation.org, May 2015

8 ‘A conceptual framework for circular design’

by Moreno, M. De los Rios, C. Rowe, Z., & Charnley, F. (2016)

in Sustainability, 8(9), 937

9 As above

Click reference number to navigate back to context.

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